Open Source Blog

Gorman joined the VC firm in July with a focus on "consumer and business software and open source software". Asked 'why open source?' by a Slashdot reader, he gave the following reply:

"The big advantage open source companies have over traditional software companies is the ability to rapidly take unit marketshare and create a new standard. The best example of this is MySQL.

"Who would have thought five years ago there would have been another database to rival IBM DB2, Oracle, and MS SQL Server? By all estimates MySQL now has my more installations than IBM or Oracle; some estimates show that MySQL has more installations than SQL Server!

"Open source allows a company to completely change the rules of the game. MySQL has over $40M in revenue the past 12 months and is probably valued at over $1 Billion. This is an amazing company."

This is a decent revenue stream for MySQL, and a large increase on the $12m being cited in 2003and $20m being cited in 2004. In fact, CEO Marten Mickos has claimed that "MySQL will double its ~$40M number this year".

Of course, MySQL makes a proportion of that revenue from selling commercial licenses thanks to its dual-license strategy. Gorman admits that open source vendors that do not own their own code do pose a potential investment risk for potential acquirers.

"Many potential acquirers may come from traditional business models and have to accept this new open source model that does have ownership of the intellectual property. For instance, in the recent of acquisition of JBoss by Red Hat, there was at least one additional company that was ready to put an offer on the table, but stopped its negotiations when it realized that JBoss did not own any of its intellectual property," he writes - I wonder what company that might have been.

"JBoss ended up selling to Red Hat for $420M which was 28 times trailing 12 month revenue ($15M). Red Hat is a publicly held company; its shareholders and management team are clearly comfortable with the open source business model of not owning your intellectual property and valuing the company based upon unit marketshare and support and service revenue," Gorman adds.

The Q&A covers much more than open source, and I recommend a read to learn about how VC assist in selecting management teams, common start-up problems, when the best time to look for VC money is, open source business models, financial control, Gorman's background, and that magic ingredient.

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